2012 (6) TMI 770 - HC - VAT and Sales Tax

y for claim of exemption u/s 5(2) of the Central Sales Tax Act - Privity of contract between the Government of India and the foreign party for importation of any goods or not Whether in the absence of any sale in the course of import the finding of the Tribunal that the transaction continued to be in pursuance of the earlier contract made by the Government of India Mint Noida with the first respondent and therefore there existed a privity of contract is liable to be interfered with or not - Held that - The assessee has entered into contracts with the foreign seller for conversion of steel strips into coin blanks for valid consideration - under the CST Act 1956 tax is leviable on the sale of goods and not because of the movement of the goods - The movement of the goods is only material for the purpose of deciding whether the sale took place in the course of inter-State trade or commerce or whether such sale was purely an intra-State transaction - the name given to a transaction by the parties concerned does not decide the nature of the transaction - in order to make a transaction taxable under the CST Act 1956 the transaction must be a sale as defined in section 2(g) - To claim exemption u/s 5(2) of the Act the sale or purchase of goods should be deemed to take place in the course of the import of the goods into the territory of India - as per the definition sale means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration. In K. Gopinathan Nair Versus State of Kerala (and other appeals) 1997 (3) TMI 513 - SUPREME COURT OF INDIA the Supreme Court formulated the following three essential conditions to come to a conclusion whether the sale can be said to be in the course of import to claim exemption under section 5(2) of the CST Act or not starting with there must be a sale goods must actually be imported and sale must occasion the import - the assessee has not established that there was any term or condition prohibiting the diversion of the goods after the import i.e. the inextricable link between the transaction of the sale and the actual import making sale in the course of import - Moreover in order to qualify for the exemption the goods must move from the foreign country to India in pursuance of the conditions in the contract of sale between the foreign seller and the local purchaser but the goods were imported from the foreign country to India in pursuance of the contract entered into between the foreign seller and the first respondent who was not the local purchaser thus the sale contemplated u/s 5(2) of the Central Sales Tax Act 1956 is not applicable the transaction took place between the parties had amply made it clear that the sale contemplated under section 5(2) had not taken place and moreover even assuming that there was an import of goods from Italy such import was not occasioned as a result of sale by a dealer in Italy - The dealer was prevented from selling the goods to any person other than to whom the import licence had been granted i.e. to be sold only to the Mint Government of India by the dealer thus the order of the Tribunal is set aside Decided in favour of petitioners.

Summary

Issues Involved:
1. Disallowance of exemption on high sea sales.
2. Levy of tax at an enhanced rate due to the absence of C forms.
3. Levy of penalty under section 9(2A) of the Central Sales Tax Act.
4. Disallowance of exemption on stock transfer (specific to the assessment year 1991-92).

Issue-wise Detailed Analysis:

1. Disallowance of Exemption on High Sea Sales:
The first respondent, a Government of India enterprise, reported substantial turnovers for the assessment years 1989-90 and 1991-92. Disputes arose regarding the disallowance of exemptions on high sea sales of coin blanks. The Appellate Assistant Commissioner upheld the disallowance for both years, which was later reversed by the Tamil Nadu Sales Tax Appellate Tribunal. The State contended that the transaction could not be considered an import since the first respondent retained ownership of the goods throughout the process, and there was no privity of contract between the Government of India and the foreign party. The court analyzed the contracts and concluded that the agreements were independent and commercial in nature, with no integral connection to qualify for exemption under section 5(2) of the Act. The Tribunal's decision was set aside, reinstating the disallowance of the exemption.

2. Levy of Tax at Enhanced Rate Due to Absence of C Forms:
For both assessment years, the first respondent was taxed at an enhanced rate due to the absence of C forms. The Appellate Assistant Commissioner confirmed this levy, and the Tribunal upheld the decision. The court did not find any reason to interfere with this part of the Tribunal's order, thus maintaining the levy of tax at the enhanced rate.

3. Levy of Penalty under Section 9(2A) of the Central Sales Tax Act:
Penalties were imposed for both assessment years, which the Appellate Assistant Commissioner reduced from 150% to 50% of the tax dues. The Tribunal reversed the penalty levy, but the court, upon reviewing the facts and the law, found that the penalty was justifiable. The Tribunal's decision to reverse the penalty was set aside, reinstating the penalty as reduced by the Appellate Assistant Commissioner.

4. Disallowance of Exemption on Stock Transfer (Specific to Assessment Year 1991-92):
For the assessment year 1991-92, the first respondent disputed the disallowance of exemption on stock transfer. The Appellate Assistant Commissioner remitted this issue for further consideration. The court did not address this issue in detail, as it was already under reconsideration by the appropriate authority.

Conclusion:
The court allowed the writ petitions, setting aside the Tribunal's order dated February 26, 1999. The disallowance of exemptions on high sea sales was reinstated, the levy of tax at the enhanced rate due to the absence of C forms was upheld, and the penalty under section 9(2A) was reinstated as reduced by the Appellate Assistant Commissioner. The issue of stock transfer exemption for the assessment year 1991-92 remained under reconsideration.